Issuing Banks

Issuing banks play a crucial role in the financial system by providing cards to customers and managing the related financial processes. Here are some insights based on expert discussions:

1. Historical Context:

   • Historically, banks were not only deposit holders but also the sole private suppliers of currency. In the pre-Civil War era, different banks issued their own notes, which were claims to underlying amounts of gold. This created a uniform monetary standard without a monopoly on the issuance of currency. However, during the Civil War, state-chartered banks lost the right to issue currency due to prohibitive taxation, and only national banks issued notes under strict regulation to aid war financing 1.

2. Credit Card Issuance:

   • Bank of America (B of A) realized early the potential of credit card networks, which started in the mid-1960s. They expanded their network internationally and signed up hundreds of banks, creating millions of cardholders. However, they faced challenges in scaling their proprietary system, particularly in differentiating between issuing banks (which give cards to customers) and merchant banks (which handle transactions for merchants). This distinction became crucial as their network grew beyond B of A's direct control 2.

These discussions underline the evolution and complexity of issuing banks within the financial sector.